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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These are the cross appeals filed by the revenue and the assessee against orders dated 23.03.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-11, Pune, for the assessment year 2011-2012, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’). Assessment Year: 2011-2012 Brief facts of the case are that the assessee engaged in construction of buildings, roads, laying of water of sewage pipes, residential houses, govt. offices etc., filed its return of income for the assessment year under consideration declaring the total income of Rs. 4,99,65,815/-. Since, the case was selected for scrutiny, notices u/s 143 (2) and 142 (1) were issued to the assessee. In response to the said notices, the authorized representative of the assessee attended the proceedings from time to time and filed the details called for and also discussed the case with the AO. During the course of assessment, it was noticed that the assessee had made purchases from 12 bogus parties, amounting to Rs. 14,43,33,396/-, which were in the list of ‘hawala dealers’ submitted by the Sales Tax Department. In order to verify the genuineness of transaction the AO issued notices u/s 133 (6) of the Act to the said parties, however, all the notices were returned un-served by the Postal Authorities. The AO further asked the assessee to establish the genuineness of purchases and also to produce the parties from whom the purchases were made. The assessee submitted that all the purchases were genuinely made from the parties concerned. The AR further submitted that the payments were made by account payee cheques and the copies of ledger accounts reflecting transactions and bills have been submitted to confirm the purchases in question. The AR relying on the various judgments of the Hon’ble Supreme Court and Hon’ble High Courts submitted that it would be unfair and against the law to treat the genuine purchases to be false merely on the basis of the report of Sales Tax Department.
The AO holding that the contentions of AR are not acceptable made addition of the total amount of Rs. 14,43,33,396/- to the income of the assessee treating the same as bogus transaction. In the first appeal, the Ld. CIT (A) restricted the addition to 20% of the total amount of the said Assessment Year: 2011-2012 purchases. Against the impugned order passed by the Ld. CIT (A) the assessee and the revenue are in appeal before the Tribunal.
3. The assessee has raised the following effective ground of appeal against the impugned order passed by the Ld. CIT (A):-
On facts and under the circumstances of the case and in law, the Honorable Commissioner of Income Tax (Appeals) was not justified in holding that 20% of the alleged total suspicious purchases be disallowed. The learned Assessing Officer had disallowed the total alleged suspicious purchases amounting to Rs. 14,43,33,396/-.
4. Before us, the Ld. counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the Ld. CIT (A) has wrongly sustained the addition of 20% of the total amount of questioned purchases. The addition has been made on the basis of general information received from Sales Tax Department. The purchases were made through proper invoices containing the addresses, VAT and TIN registration numbers and Central Sale Tax registration numbers. The copies of these bills have already been filed before the authorities below. The payments were made by payees account cheques and the ledger accounts of all the vendors, appearing in the assessee’s books of account, duly audited by the Chartered Accountant have been placed on record during the assessment proceedings. The goods purchased from the parties were received by the assessee at different construction sites and were utilized in the construction under the supervision of Engineers from respective departments. The Ld. counsel further contended that without purchase of material it would not have been possible for the assessee to execute the contract work assigned by the Govt. Departments or other parties. The Ld. counsel further contended the since the consumption of the material are not doubted the purchases also should not be doubted. Relying on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. Nikunj Eximp Enterprises Pvt. Ltd. (2013) 216 Taxman and other decisions, Assessment Year: 2011-2012 the Ld. counsel submitted that merely because of the fact that the suppliers did not appear before the AO, purchases cannot be disallowed. The Ld. counsel relying on the various judgments of the High Courts and the decisions of the Tribunal submitted that since the assessee has established the genuineness of purchases, the Ld. CIT (A) has wrongly sustained the addition of 20% of the total amount of bogus purchases.
5. On the other hand, the Ld. Departmental Representative (DR) relying on the assessment order passed by the AO submitted that the Ld. CIT (A) has wrongly restricted the addition of 100% to 20% ignoring the fact that the assessee could not produce primary evidence like Octroi receipts, delivery challan etc. to prove the genuineness of the purchases and actual delivery of material before the AO or before him. The findings of the Ld. CIT (A) are therefore, not in accordance with the principles of law laid down by the Hon’ble Gujarat High Court in the case of N.K. Protein, Vijay Protein and Simit P Seth etc. and the decision of the ITAT, Pune Bench rendered in dated 20.02.2015 in the case of M/s Kolte Patil Developers Ltd., wherein 100% addition of bogus purchases was confirmed. The Ld. DR further pointed out that the department has also filed cross appeal against the impugned order passed by the Ld. CIT (A).
We have heard the rival submissions and also gone through the material on record including the cases relied upon by the parties and the authorities below. We notice that the AO has not rejected the books of account and accepted the sales/consumption of material by not rejecting the books of account of the assessee. Since, the AO has not disputed the consumption of sale/material, it cannot be concluded that the goods were not at all purchased by the assessee. The facts and circumstances of the case rather suggest that the assessee had purchased the goods in grey market without paying VAT and other applicable taxes and in order to justify the said purchases, the accommodation bills were obtained from the aforesaid 12 bogus parties. Since, Assessment Year: 2011-2012 the assessee has failed to produce the cogent and convincing evidence like octroi receipts, delivery challans, the authorities below have rightly held that the goods were not purchased by the aforesaid parties but only accommodation bills were obtained from the said parties. The evidence on record is not sufficient to establish the genuineness of purchases in question. Under these circumstances, we are of the considered view that addition of 20% of the total amount of questioned purchases sustained by the Ld. CIT(A) is on higher side.
The Hon’ble Gujrat High Court in CIT vs. Simit P. Seth 356 ITR 451(Guj) upheld the decision of the Tribunal and sustained the addition 12.5% of the total bogus purchases holding that only profit element embedded in such purchases can be added to income of the assessee. Hence, in the light of the judgment of the Hon’ble Gujarat High Court, only profit element is required to be added. Therefore, addition sustained by the Ld. CIT(A) is, in our opinion not reasonable and hence, the impugned order is not in accordance with the principles of law down by the Hon’ble Gujarat High Court. We accordingly, following the judgment of the Hon’ble Gujarat High Court, modify the impugned order passed by the Ld. CIT (A) and restrict the addition to 12.5% of the total amount of bogus purchases. So far as the cases relied upon by the revenue is concerned, in our considered view, the same are distinguishable on facts. Hence, we partly allow the appeal of the assessee and direct the AO to make addition of 12.5% of the total amount of bogus purchases. The revenue has raised the following effective grounds of appeal against the impugned order passed by the Ld. CIT (A):-
1. “On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in relying on Hon’ble High Court’s decision in the case of N.K. Proteins, Vijay Protein, Simit P Seth, etc. Assessment Year: 2011-2012
2. On the facts and in the circumstances of the case, and in law, the Hon’ble CIT (A) erred in not following the order of ITAT, Pune in dated 20.02.2015 in the case of M/s Kolte Patil Developers Ltd. wherein 100% addition of bogus purchases was confirmed.
On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in giving relief to the assessee to the extent of suppressed G.P. out of total bogus purchases even though- (i) The assessee could not produce primary evidences like Octroi Receipts, Delivery Challan etc. evidence to prove the genuineness of the purchases before the AO and before CIT (A). (ii) The affidavits filed by the entry providers before Sales Tax Authorities cannot be ignored having evidentiary value. 2. Since, we have partly allowed the assessee’s appeal and modified the impugned order and restricted the addition to 12.5% of the total amount of bogus purchases made by the assessee during the year relevant to the assessment year under consideration after hearing the Ld. DR, the revenue’s appeal has become infructuous. Hence we dismiss all the grounds of appeal of the revenue. In the result, appeal filed by the assessee is partly allowed and the revenue’s appeal is dismissed.